Gear & Gadgets —

Sony revises earnings projections down. Way down

Back in April, Sony predicted that its 2006 operating income would be ¥130 …

Sure, Sony has had its problems this year—PS3 production problems, massive battery recalls, less-than-expected enthusiasm for its PSP—but Sony's a massive worldwide corporation and one of the strongest brand names in the world. How much could a few production missteps hurt them? A lot more than you might think.

Sony has just announced a revision of its projected performance numbers for the 2006 fiscal year, which ends on March 31, 2007, and it's a grim tale. While the sales and operating revenue projections remain unchanged, the company's operating income will plummet from ¥130 billion to ¥50 billion. That's a drop of 62 percent.

To understand why Sony expects to make so much less money this year, take a look at the chart below, which is compiled from the company's own figures. At the left of the chart is Sony's most recent forecast, which projected the ¥130 billion of operating income. That number will be boosted substantially by strong performance in consumer electronics such as televisions and cameras, and by changing foreign exchange rates that work in Sony's favor. Also, at the far right of the chart, you can see that Sony's corporate restructuring will cost them ¥10 billion less than anticipated. That's the good news.

Data source: Sony

The bad news begins with the charges Sony will incur from its worldwide notebook battery recall, an amount large enough to offset the performance and foreign exchange gains. Not being able to produce enough semiconductors for the PS3 will lower income by another ¥33 billion, while the cost of subsidizing the hardware will cost ¥30 billion. Sluggish sales of the PSP mean that Sony is taking another ¥30 billion off of its estimate.

The result is ¥50 billion in projected operating income, not ¥130 billion. That's a substantial hit, even to a company of Sony's size. The company does project a much stronger 2007, though, and is banking on a successful launch of the PS3 to boost income in the next year.